The Uranium Bull Market Keeps Getting More Bullish

Industry expert says all new production already factored in uranium price We are consuming far more uranium than we are producing worldwide, explained David Miller, Wyoming legislator and recently appointed president of Strathmore Resources (TSX-V: STM; OTC: STHJF.PK). All the new production is already factored into the future market for uranium. Were underwater right now without building one more nuclear power plant. Nuclear reactor requirements have far outstripped current mining production (see chart below) for the past two decades. Current worldwide production is more than 80 million pounds, but the demand for uranium, which fuels nuclear reactors, is running an annual deficit of approximately 60 million pounds.

According to a World Nuclear Association report on uranium supply, published this past September:

the world’s present measured resources of uranium in the lower cost category (3.5 Mt) and used only in conventional reactors, are enough to last for some 50 years Further exploration and higher prices will certainly, on the basis of present geological knowledge, yield further resources as present ones are used up so a significant increase in exploration effort could readily double the known economic resources, and a doubling of price from present levels could be expected to create about a tenfold increase in measured resources, over time.

Electricity: Uraniums Supply and Demand Problem

Were not going to run out of uranium, but where will the price go to encourage new production? asked David Miller. We are around over $33/pound now. Could it double again? It wouldnt surprise me at all. Kevin Bambrough, a research analyst for Sprott Asset Management, heartily agreed with Mr. Miller, saying, We have just started a long term uranium bull market that will end in a uranium mania as utilities and countries drive uranium prices to unbelievable highs as they compete to secure supplies.”

That driving force is demand for more electricity. Over the past 25 years, total world energy use expanded by almost 50 percent, with stronger growth in electricity usage. Demand for electricity is increasing far more rapidly than overall energy use. Electricity demand has been projected to grow 2.8 percent annually through 2010, and substantially more between then and 2020. About 2 billion people currently have no electricity access, and with United Nations forecasts of world population growth by 1.5 billion people in 2020, electricity demand will continue to grow.

As an interim solution to the greenhouse gas problem and climate changes (e.g. the worst Atlantic hurricane season since record-keeping began), a growing number of countries are investigating nuclear energy to solve their burden of a soaring electrical demand. Presently, there is as much electricity generated by nuclear power as was provided by all sources worldwide in 1960.

Nuclear power generates more than 16 percent of the worlds electricity, nearly 24 percent of the OECD and 34 percent of the European Unions electricity needs. In an April 2005 speech to the National Small Business Conference in Washington, President Bush announced, Nuclear power is now providing about 20 percent of America’s electricity, with no air pollution or greenhouse gas emissions. Nuclear power is one of the safest, cleanest sources of power in the world, and we need more of it here in America.

Demand for electricity is projected to impact other commodities as well, not just the price of uranium. In the Energy Information Agencys Annual Energy Outlook 2005, U.S. electricity demand will bring about increases in natural gas consumption. By 2025, the electric power sector will account for 31 percent of total demand for natural gas, as consumption increases from 5.0 trillion cubic feet in 2003 to 9.4 trillion cubic feet in 2025.

Chinas Demand May Be Greater Than Anticipated

Today, 441 nuclear power reactors in 31 countries provide more than 16 percent of the worlds electricity. In 2003, that was 2525 billion kilowatt hours. Eleven countries are constructing thirty more reactors, mainly in China, but also in Russia, Japan and Korea. The International Atomic Energy Agency has projected at least 60 new power plants will be constructed over the next 15 years. By 2020, nuclear powers electricity production share will increase to 17 percent.

China is the future wild card, said Miller. Their current uranium demand is miniscule. They have a small nuclear industry. They may have three or four thousand megawatts of capacity. Their uranium demand is only about 4 or 5 million pounds per year. They meet that internally from their own uranium deposits. But what they are planning for nuclear is probably the most aggressive program in the world. I visited China in 2003 to teach ISL (in situ leaching) uranium geology and ISL mining techniques to a couple of institutes. At that time, they were talking about building two new nuclear power plants per year for the next 20 years.

But as Miller observed, they may have more ambitious plans. He added, Since then, I have heard of more aggressive programs. One article I read recently was entitled, Let 1000 Reactors Bloom. That is more than 200 percent of the nuclear reactors we now have on earth. I believe that is what the Chinese will be doing in the next 40 50 years, converting nearly 100 percent of their electrical generation from nuclear power. Currently, China is generating less than three percent of their electricity from nuclear energy.

Miller speculates of how this might impact the price of uranium, If they are building nearly three times the world fleet in just China, then that would be about 500 million pounds of uranium demand from China in fifty years. Other companies are announcing new nuclear power plants. What does that mean for the price of uranium? Miller concluded, So, the demand for uranium is going up. I think the growth in demand will be more rapid than we realize.